CO—SOURCING TO MAXIMIZE CASH AT THE LOWEST COST: A NEW BUSINESS MODEL FOR THOSE WANTING A FAIR DEAL

In other words, it is not for everyone. After years of transforming, process improving, reinventing, workflow redesigning and otherwise technologizing the revenue cycle, the reality is everyone is fatigued over the revenue cycle thing. 

“Not another ‘this can be done better’ discussion, please.”

Well, I don’t think there is much of a choice. And, it’s not about beating on the revenue cycle with yet another stick. It’s about rethinking business models fundamentally. 

Why do I think we can’t let it go and move into cruise control? Because: PAYERS ARE GETTING MORE SOPHISTICATED, USING AUTOMATION TO REDUCE YOUR REVENUES-- LIKE ALGORITHMIC DRG DOWNGRADES!

Automation is reaching a new level of maturity, and while much out there is more hype than reality, automation is being ramped up hitting revenue cycles that are just not prepared for it. For example, new technologies are used for automated DRG downgrades using algorithms. 

UnitedHealth Group has a market capitalization of $240 Billion and reported revenues of $226.2 Billion. Compare that to the size of your health system. Say you are with a very large system, then your revenues are maybe $8B or $10B. Less than 5% of UnitedHealth Group.

How big is your war chest? How big is theirs?

Another great example are denial overturn rates. Success rates for denial appeals have dropped from 56% to 45%, while costs to manage denials with physician advisers and other expensive resources are only increasing. Denials cost hospitals up to 2% of net revenue, that is 2% of expected and earned revenue.

MEANWHILE, HOSPITAL EXPENSES IN 2019 GREW 3% FASTER THAN REVENUE.

And from 2015 to 2017 the average provider network had their operating margin decline by 39% according to Navigant. KaufmanHall found that operating margins for hospitals declined another 21.3% in 2019, and per the Advisory Board and Moody’s the average hospital will see a negative operating margin of 4.2% by 2025.

“But revenue cycle again, really?”

A comment by a hospital system CEO I spoke with recently sums it up eloquently: “IT’S A LOT EASIER TURNING THE REVENUE YOU HAVE INTO CASH, THAN IT IS TO GET NEW REVENUE”. Well said.

So if there is meaningful cash to be had by converting existing revenue, than it can be a nice contribution if not a lifeline. The question is: how big is the opportunity? 

In our most recent analysis and various baselines the answer is:

·      NET A/R DAYS CAN USUALLY BE REDUCED BY 2-6 DAYS

·      NET INCOME CAN BE IMPROVED BY 2-4% OF REVENUES

You will not see this opportunity, in fact it will be disguised, when looking at the usual metrics of Net A/R days or Net as a Percent of Cash. 

TRADITIONAL METRICS WILL NOT REVEAL THIS OPPORTUNITY. 

There is only one way we have found to see how big the opportunity is: by determining the cash yield profiles against benchmark profiles at set time intervals and using actually contracted revenues. 

This is substantiated by deeper analytics and confirmed with a few hundred detailed account audits. We just finished this assessment for a large health system and uncovered a gap in excess of $20M. We have been using this profile characterization for over a decade and it works every time, it creates a fact-based conversation about, “is the juice worth the squeeze?” -- as one of our clients would say.

Of course, the real question is: how does one capitalize on this opportunity?

There is one more FALLACY to discuss first.

“MISCHA, WE OUTSOURCE OUR A/R AND WE PAY ONLY ON COMMISSION. IF THERE WERE DOLLARS TO GET, THE VENDOR WOULD GET THEM, AND THEY DON’T, SO IT’S NOT THERE.” 

I hear this a lot. Here is why this line thinking is troublesome: Say you pay an 8% commission to your aging A/R vendor. Say there is a remaining liability of $100 to collect. What is the maximum investment the vendor can afford to make before he loses money on this effort? $8. What if it takes $10 to get this paid, will the vendor do it? No, of course not, they would lose $2, so no, forget about it. 

Would you do it, as the owner of the liability? Of course, your net gain would be $90. So, if the remaining cash is not coming in, it is due to the business model itself. It prevents the cash from coming it. And almost everyone that uses this business model thinks it works when it doesn’t.

OUTSOURCING GUARANTEES THAT YOU DON’T GET THE MAXIMUM CASH.

Of course, this is not the only issue with outsourcing in the old business model. Fees are usually quite high, no vendor on earth signs up to liquidate your A/R for the kinds of margins you generate as a health system (They may be as high as 10x your margins). Accounts are cherry picked, there is no real control over what gets worked. Quality standards are often questionable, not to speak of “offshoring” your accounts without your explicit knowledge (There are many large 2nd tier vendor doing this white labeled behind the brand of “reputable” firms). Problems abound.

IN-SOURCING IS NOT REALLY A SOLUTION EITHER. 

IT departments are often overloaded with clinical implementation requests, so revenue cycle automation takes a back seat. Access to quality talent is an issue. Real estate is at a premium and expensive. Last, but not least, you are bound by a high labor burden working inside the confines of a healthcare system (not to speak of HR policies preventing an agile approach to managing staff and performance).

But there is a different way to do this: CO-SOURCING MAXIMIZES CASH WHILE MINIMIZING COST.  

Co-sourcing means the “vendor” is jointly operated, and incentives are aligned through the payment structure to make sure there is true incentive, (on both sides) to maximize cash and minimize cost. It means profits are shared in a fair and equal way. Joint governance ensures work is done in a fashion aligned with your wishes. You maintain control. The best part is, it is all managed through the contract, so no complexities like needing to form a JV.

In a Co-Sourcing arrangement automation and workflow technology is applied to your A/R efforts, and the gains are again shared with you. As a co-sourcing partner, we leverage the technology cost over several of our partners, making it affordable for everyone.

In our onshore Co-Sourcing partnerships, only dedicated, high quality resources are deployed that undergo constant workforce development. Performance is measured at all levels continually, and the HR structure and overhead are designed for back-office operations, not healthcare provider organizations.

Co-Sourcing changes the foundation of the relationship to benefit you and the co-sourcing partner equally. SAME SIDE OF THE TABLE. 

IF YOU WOULD LIKE TO DISCUSS HOW CO-SOURCING WORKS AT A DEEPER LEVEL, PLEASE CONTACT ME DIRECTLY TO SET UP TIME TO SPEAK IN PERSON, here on LinkedIn or directly at [email protected].